Deakin Research

The retail evolution

Tue, 19 Jul 2011 13:59:00 +1000

By Danielle Crisp

Once upon a time we wouldn’t consider buying without trying. Who would purchase shoes without first trying to squeeze them on?

And why would you buy a lounge suite - let alone a bed - without checking for lumps and bumps?

The thought of handing over hard-earned cash - or credit - for something you hadn’t seen, tried or tried on, was almost unthinkable.

But enter the world wide web and the online shopping phenomenon. No longer does shopping need to be the domain of traffic jams, crowded malls and long queues. Why shop ‘til you drop when you can consume with a click?

But what does this mean for the bricks and mortar retailers?

Recently, several large music and book store chains, along with clothing and retail giant Colorado Group, have been forced into administration. And it seems the blame - at least in part - is being directed at the online shopping splurge.

Consumers have been groomed to depend on sales - they’re recurrent and offer seemingly genuine savings.

But it appears the big red signs screaming ‘50% off’ are no longer enough to lure customers through store doors. And that’s hardly surprising when online shopping offers everyday low prices and items delivered to your door from the comfort of home.

Australian Bureau of Statistics figures reveal lower than expected retail sales in recent months particularly during, and in the lead up to, the traditionally busy Christmas period. Meanwhile, online retail figures are skyrocketing.

Independent global research company Forrester Research predicts that Australian online retail sales will almost double from $16.9 billion in 2009 to $33.3 billion in 2015.

Industry Fellow from Deakin’s Graduate School of Business, Steve Ogden-Barnes, says the emergence of online shopping is part of an evolutionary retail experience.

“We have gone through the evolutionary stage of the strip of shops to the shopping centre, and in the same way that the shopping centre threatened or compromised the strip of shops, online shopping is having an effect on bricks and mortar retailing,” he said.

“Just as any form of evolution occurs, there are some winners and some losers.”

But Mr Ogden-Barnes says many retailers have not adequately prepared for this.

“It’s an evolution that seems to have caught a lot of companies by surprise, mainly because their strategy has been all about bricks and mortar,” he said.

“There has been reluctance by Australian retailers to embrace online.”

However, it seems that many shopping centres and department stores have tried to combat online shopping through extensive refurbishments.

Senior lecturer in Deakin’s Graduate School of Business, Dr Paul Harrison, believes shopping-centre makeovers are an attempt to encourage consumers to focus on the shopping experience.

“I think we will continue to build bigger and bigger malls,’ he says. ‘Mostly, people will buy based on brand and price, but if you create an environment that a person can spend a large amount of time in without thinking that they’re shopping - like the Chadstone and Doncaster model - people are more likely to spend their money there.”

Chadstone and Doncaster are large shopping malls in suburban Melbourne.

Mr Ogden-Barnes adds that these types of developments can increase the value of the shopping experience.

“We are seeing a new generation of shopping centres which really blends retail and leisure in some fairly interesting ways. But if you look at some of the older mid-sized and mid‑market shopping centres, they are just concrete boxes, and the appeal of the concrete box will diminish. Because of that, you may be looking at a much higher calibre of shopping centre,” he said.

But, as evidenced by the turbulent retail market, this may not be enough to restore traditional retail sales.

In addition to improving the in-store shopping experience, Mr Ogden-Barnes says retailers need to embrace online rather than rebel against it.

“The bottom line is it’s going to be hard, if not impossible, to survive as a bricks and mortar retailer unless you accommodate the internet in some way as part of your business plan,” he says.

“You can’t un-invent the web and you can’t change the fact that people are now increasingly looking online and buying online. The majority of consumers are very internet savvy, they’re very price conscious, and they’re also very time poor.

People are now putting more effort into understanding the true price of the product and people are shopping for the lowest possible price point.

Shopping for the lowest possible price often drives consumers to overseas-based online retailers. Australia’s largest department store, Myer, recently launched a China-based web site selling imported, GST-free goods - a strategy that circumvents the current GST on purchases of less than $1000. Just a few weeks later, Harvey Norman launched a daily deal shopping web site, described by some as a testing ground for a more comprehensive online offering.

But creating an online presence is not the only strategy retailers must employ to retain their market share. Dr Harrison says that while many retailers have relied on a mass market model, a lot are now faced with market fragmentation and the need to segment.

“We have to let go of the idea that everyone is going to want to shop in shops. We need to have multiple business models going at the same time and they have to suit the markets that you’re targeting. Different people use the internet, so retailers need to have a balance between the online experience and the in-shop experience,” he said.

In line with the concept of segmentation is the idea that smaller, specialist stores - which focus on niche markets - are the way forward.

“The idea that you can have massive stores full of all your stock all the time is just not sustainable when people can buy things online,” Dr Harrison said.

Mr Ogden-Barnes believes we may have smaller stores with more focused ranges, or may see a return to the specialist shop, because applying supermarket principles to many retailing categories “doesn’t work in this day and age”.

“So you might find, for example, book shops that only sell children’s books,” he says.

However, despite some predictions otherwise, Dr Harrison and Mr Ogden-Barnes agree that it is not all doom and gloom for in‑store shopping and that many consumers still prefer to shop this way.

“Most people are risk-averse, so generally speaking, the average consumer would prefer to shop in a shop than online, Dr Harrison says.

“They want to know that they can go back to a store if things go wrong.”

Dr Paul Harrison
Dr Paul Harrison
Showcase facts
  • People are now putting more effort into understanding the true price of the product and people are shopping for the lowest possible price point.
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18th March 2011